The New Economy uses information intensively and more transactions are made at arms length and in real time. A culture of fraud and uncertainty is inconsistent with the New Economy—both stymieing its development to the extent that people feel insecure as well as being exposed by the greater transparency of information. Policymakers should consider how best to support the development of an environment of trust and certainty. Within the domain of fiscal policy and fiscal activities of government: Governments are big economic players in many economies, and they have big budgets.
Governments can lead the way and pave the way for using the technologies of the New Economy, or they can hinder the transformation by both public and private sectors. Research suggests that government agencies can enjoy the same type of productivity gains from the New Economy that businesses do. Getting this expertise into the government agencies is the issue. Building on the elements of e-APEC, E-government teams that are composed of foreign, domestic, and government entities can bring productivity enhancing ICTs as well as transformation into members’ government operations. Research suggests that governments should be more careful in their economic activities in the New Economy.
High-return government spending in areas where the market fails are even more critical, given the need to support transformation in the New Economy, because the productivity gains to be achieved are greater. Conversely, low-return government spending on economic intervention where no market failure exists stymies transformation, and must be very critically assessed given the increased opportunity costs of that spending. Reform to eliminate unproductive spending or spending that forestalls transformation has added benefits, in that it enhances the fiscal balances, allows the lowering taxes, or allows increased spending on social needs.
It frees up human talent previously absorbed into uncompetitive enterprises as well. Research reveals that the New Economy transactions will affect how tax regimes work— both in terms of types of taxes used (direct and indirect) as well as in terms of tax administration. While the future direction for tax regimes is quite complex, economies pursing the New Economy today should quantify the extent and nature of tax evasion, which is often an impediment to bringing economic activities on-line in the New Economy and which, at the present time, reduces the resources available for the valuable activities of government.
The New Economy productivity premium is quite real, and it is the product of domestic economic policies that are more than access to technology per se and that are critically complementary to HRD. Therefore, a re-emphasis and re-analysis of policy reform is called for. If the upside allure of higher growth is not sufficient to motivate policymakers to reform, then acknowledging the downside risk of lost comparative advantage relative to more actively adjusting neighbors certainly should be. The political and human challenges that accompany economic development are daunting.
The hope is that this Report will provide the analytical foundation to build consensus on the scope and nature of the policy underpinnings of the New Economy so that all in the region can benefit from the New Economy. - 8-